Economic and environmental impacts of competitive remanufacturing under government financial intervention

Abstract

Remanufacturing has long been viewed as a green strategy to increase profit, and hence its advancement has been supported by governments around the world. In this paper, two competing manufacturers have the same opportunity to establish the remanufacturing capability, and the government can subsidize one manufacturer’s fixed cost of remanufacturing. We develop a game theoretical model to investigate the economic and environmental impacts of competitive remanufacturing. In the absence of government intervention, our analysis characterizes all possible outcomes. Even for two identical manufacturers, asymmetric equilibria can arise, that is, one manufacturer carries out remanufacturing, but the other one does not. When both manufacturers are engaged in remanufacturing, they might have a Prisoner’s Dilemma in which the Pareto optimal solution is not to remanufacture. Moreover, both manufacturers might increase the new product quantities to generate more cores for profitable remanufacturing, because of which the environment is worse off. Next, we examine the impact of government intervention through a comparative analysis and identify the conditions where government intervention has positive impacts on both the industrial profit and environmental performance. These results provide a novel explanation for the use of government intervention in the remanufacturing sector.